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Coronavirus Job Retention Scheme: What's the impact on engineering services?

We live in extraordinary times. The Coronavirus Job Retention Scheme (CJRS), announced last week, surely represents one of the most extraordinary products of these times. An effective 80% state subsidy for wages in the private sector, in a previously liberal free-market economy, launched by a Conservative Chancellor.

Many questions about the CJRS remain unanswered. All we have to go on at the moment are a few sentences in the Chancellor’s speech last Friday and some equally sparing guidance on the Government’s Coronavirus information page for businesses and employees.  

Given the speed at which events are moving, this is hardly surprising, and any immediate assessment of the CJRS – including this one – needs to be written, and read, with care.

That said, we already know enough about the CJRS to be able to analyse its main features, and the extent to which these could prove genuinely helpful to businesses, or not.

In essence, employers wanting to access the CJRS will need to divide their employees into two groups. The first group are those employees who will continue working, and whom the employer will need to carry on paying without any subsidy from the CJRS.  

The second are so-called ‘furloughed’ employees, who will not work – indeed, could be forbidden from working. Instead, this ‘furloughed’ group will receive 80% of their previous pay via an HMRC grant, which their employer can choose to top up, or not.

This approach is not without complexities and potential difficulties. First, as the Chancellor himself admitted, HMRC does not have the IT or administrative systems in place yet to issue ‘furloughed’ employee grants to employers. Although affected businesses might be entitled to backdate their claims to 1st March, the first of these grants will be payable – according to HMRC’s own estimates – only at the end of April.

Secondly, normal employment law rules will still apply. This means that affected employees must agree before the employer can designate them to HMRC as ‘furloughed’. Of course, given present economic insecurity, most employees will most likely prefer to be furloughed on 80% pay to redundancy, and so any complication here should prove more theoretical than real.

This is one reason why ECA believes a more flexible design for the CJRS is required, as outlined below.

In the meantime, another important concern is that some businesses could find the preconditions for accessing the CJRS harder to fulfil than others.  

For example, some businesses possess a finite number of substantial work activities, each operating over a relatively long time-horizon, and with reasonable visibility about which of these are more likely to be affected by the present crisis. Such businesses should have a reasonable chance of deciding broadly which employees (and locations) to keep working, and which to ‘furlough’.  

Many retail, manufacturing and professional service businesses probably fall into this category. Similarly, in our own sector, larger engineering services firms involved in new-build and other longer-term contracts might be relatively placed to divide up their workforce in the way contemplated by the CJRS.

The same cannot necessarily be said for businesses whose workload is much more fragmented, short-term and reactive. Many smaller firms in our sector, for example, rely on discretionary and/or contingent decision-making from customers (in the domestic market, for example), resulting in workloads that can be uneven and difficult to predict. Rather than take a risk in keeping working, businesses in this category might be tempted therefore simply to shut up shop for the duration of the present crisis and place all their employees on state-subsidised ‘furlough’.

Whilst this course of action will undoubtedly have a negative impact on our industry, by depressing both business and individual earnings, the most serious consequences are likely to be felt by our customers and wider society. With a large part of the engineering services sector effectively in ‘lock-down’, long before any wider Government-mandated tightening of restrictions, the vital work the sector could be doing to help support businesses, property-owners and residents during these difficult, and potentially dangerous, times might just not get done.

For these reasons as well as the employment relations concerns cited previously, ECA believes that a more flexible approach needs to be designed into the CJRS from the start.

First, employers should be given the option to share work more equitably between their employees. This could be achieved by employees moving between working and ‘furloughed’ status according to a structured pattern – for example, one week ‘on’, followed by one week ‘off’. Arrangements of this sort are quite common for ‘furloughs’ in the United States, and also familiar from extended temporary lay-off and/or short-time working arrangements in the UK.

Secondly, employers and their employees should be free to agree other reduced-hours working arrangements, whilst still enjoying the security offered by the Government’s 80% pay guarantee. This extra flexibility should help encourage businesses with less predictable workloads to continue servicing customers – for example, carrying urgent and/or safety-critical testing, servicing and repairs – without putting their own survival and the economic security of their employees at risk.

At ECA, we are very interested in learning your own views about the CJRS and whether you agree with us that a more flexible approach is required, and we will soon be asking for views from the industry.